Communist revolutionary Che Guevara rapidly became an inspirational figure for revolutionary socialist change after his execution in Bolivia in 1967. Forty years later, Che lives on but his image now adorns t-shirts that have become popular fashion statements. This transformation reflects the extraordinary power of markets to capture and transform, turning an avowed enemy of the market system into a profit opportunity.
The process of capture also holds for economic policy, which has witnessed the conservative capture of Keynesianism. This capture is now on display as U.S. policymakers struggle to contain the effects of a collapsing house price bubble that was recklessly funded by Wall Street. The sting is that the full powers of Keynesian policies are being invoked to save an economy that no longer generates Keynesian outcomes of full employment and shared prosperity.
The political economic philosophy of Keynesianism emerged after World War II following the catastrophic experience of the Great Depression. The new paradigm advocated an economy with full employment and shared prosperity, and gave government the critical role of regulating markets and adjusting monetary and fiscal policy to ensure levels of demand sufficient to generate full employment.
These Keynesian tools are now being applied forcefully. (...) The capture of Keynesianism has been a gradual process. In the 1950s military Keynesianism became the hallmark of American policy, with defense spending becoming a huge and permanent component of government spending, to the benefit of the war industry.
(...) The result is Keynesian policy instruments remain, but Keynesian policy goals have been abandoned. Both Democrats and Republicans are quick to push for Keynesian stimulus policies when financial stability is threatened, but most (including too many Democrats) are silent when the economy fails to deliver shared prosperity.